Key findings from the annual report on the state of the residential mortgage market

In spite of all the challenges and difficulties caused by the global pandemic, Canadians’ interest in housing and the current prices growth surprised even the most experienced specialists.

Obviously, it has affected the mortgage market significantly.

An Annual State of the Residential Mortgage Market in Canada report by Mortgage Professionals Canada has provided a thorough view on borrower behaviour and mortgage market tendencies seen in 2020. The report, compiled by MPC’s chief economist Will Dunning, reviewed all sides of the market from average mortgage rates and down payments sources to equity usage and mortgage habits.

Here are the main findings from the report based on the category you may be interested in.

Mortgage market:

• The number of mortgages holders: 6.08 million out of a total of 10.01 million owner-occupied dwellings
• The number of HELOC holders: 1.72 million
  • It was 1.45 million last year
• The number of tenants: 4.92 million

Types of mortgages:

• 73% of mortgage holders had a fixed interest rate in 2020
  • It was 74% in 2019
  • In case of mortgages received in 2020, fixed rates were chosen 77% of the time (down from 85% seen in 2019)
• “When the pandemic started, the central bank stated that short-term interest rates will remain low for some time. As a result, variable rates seemed less risky. Nevertheless, most borrowers still chose the safe harbour of fixed rates amid extremely low interest rates available over the year,” – Dunning noted.

Amortization terms:

• 9% of mortgages had extended amortizations of more than 25 years (remained unchanged from 2019)
  • In case of mortgages received in 2018 or later (after the implementation of a stress test for uninsured mortgages), 13% have amortizations of more than 25 years

Measures aimed at accelerating repayment

• Almost 33% of mortgage holders took measures on reducing their amortization periods (up slightly from 32% in 2019)
• Among all mortgage holders:
  • 17% made a lump-sum payment with the average payment of it growing from $19,100 to $26,700
  • 15% raised the amount of their payment (the average sum was $470 more per month vs. $370 seen in 2019)
  • 6% raised their payment frequency

Mortgage arrears

• In November 2020, the mortgage arrears rate was 0.22% – slightly lower than 0.23% stated in the previous report
  • It’s about 1-in-427 borrowers
• “As we can see extremely low interest rates and very strong real estate markets across the country, mortgage holders who have faced difficulties with making their payments, will be able to solve the issue by selling the property. Although it’s definitely not a perfect decision, it’s still a better option than losing the property because of a mortgage default,” – Dunning says.

Mortgage resources

• 55% of borrowers obtained a mortgage in 2020 from a Canadian bank
  • It was 54% in 2019
• 31% of all outstanding mortgages were arranged by a mortgage broker
  • It goes up to 40% for mortgages obtained in 2020
• 9% of borrowers obtained their mortgage with the help of a credit union (vs. 3% in 2020)

Mortgage interest rates

• The average mortgage interest rate in 2020 was 2.60%
  • While it was 3.14% in 2019
• The average mortgage rate on properties bought in 2020 was 2.32%
  • Fixed rates at 2.37% and variables at 1.93%
• The average rate for mortgages renewed in 2020 reached 2.29%
  • Fixed rates at 2.36% and variables at 1.92%
• 84% of those who renewed a mortgage in 2020 received a lower rate, while 9% got a higher one
• The average remaining principal for renewals in 2020 was $245,000

Home equity

• The average home equity, as a percentage of home cost reached 72.7%, which is almost unchanged from 73% reported a year earlier
• 1% of mortgage-holders had less than 10% home equity (down from 2% in 2019)
• 91% of homeowners had at least 25% equity in their properties (up from 88%)
• 78% of recent buyers who purchased their home from 2018 to 2021 have 25% or more equity in their properties

Equity usage

• 7.7% of homeowners took equity out of their home over the past year (while it was 8.6% in 2019)
• The average amount of equity taken out rose from $72,000 in 2019 to $96,800 in 2020
• As a rule, Canadians used their equity for the following purposes:
  • 25% – debt consolidation and paying off the loan
  • 24% – various investments
  • 23% – home renovation
  • 19% – purchases
  • 6% – “other” purposes

Sources of down payments

• The average down payment made by first-time buyers over the recent years was 21% of the total home value
• The most common sources of these down payments for the first-time buyers were:
  • 84% – Personal savings
  • 25% – Gifts from parents or other relatives (it was 28% during the previous three years)
  • 30% – Loan from a financial institution
  • 26% – Withdrawal from RRSP
  • 14% – Loan from parents or other relatives

Consumer sentiment

• 90% of homeowners are happy with their decision to purchase a property
• 4% of homeowners regret doing it:
  • 7% of them regret being tied to the particular home